The Spillover of Inflation among the G7 Countries

Abstract

Many global shocks, including the renegotiation of NAFTA, the United States–China trade war, the Brexit, and the COVID-19 pandemic, may have recently influenced the inflation spillover in the G7 countries. The current literature overlooks the influence of these important events on the inflation spillover of the G7 countries. This study fulfills this gap and investigates the nature of inflation spillover in the short, medium, and long term. Using the monthly data from 1956:6 to 2020:12, the study finds that Japan and the United States are the main transmitters of inflation. International trade, purchasing power parity, low-cost technology, and the Abenomics policy were found to be responsible for the inflation spillover. We suggest that the central banks of these countries collaborate to achieve the targeted inflation rate.